I have written numerous times about the brewing trade war between the U.S. and China with many people thinking I was crazy. Well, it appears that this thing is escalating with the esteemed Paul Krugman weighing in on the issue, in a very unusual way. I am sure everyone is aware of Krugman’s political leanings, he is a bit left of center, and is a full blown Keynesian. While I am far from a Noble Laureate, actually I am nowhere close to ever receiving such a prize, but I am capable of doing nothing so you never know, but I do know what a street fight looks like and there is one brewing.
It all started many months ago over allegations from the U.S. of China dumping tires on our market, which is probably true, but during a recession I am not going to complain about cheaper products. It then escalated as China began to look into chicken products being imported from the U.S. From there it has just gone downhill with seamless pipes to automobile complaints. However, the one thing that has never stopped is the current administration, from its very beginning, has called the Chinese currency manipulators. Of course, Chuck Schumer, who would kill to get air time, literally, was weighed in on the issue as well.
Far be it from me to pick on a man who has never held a private sector job and knows as much about economics as my 10 year old, but Chuck is out of line. Krugman is not helping by saying that the RMB or Yuan is undervalued by 25% and the U.S. should place a tariff of 25% on all Chinese imports. Schumer points to this as validation of his mythical point, but I see it as one nut job helping out another. Regardless, Schumer and a few other Senators have sent a letter to Treasury demanding that the Chinese revalue their currency. This is all to save U.S. jobs and boost our exports, but it is protectionism at its worst.
Schumer and Krugman believe that we have the Chinese right where we want them, they own a ton of my debt and are very angry with us. Oh, I forgot to mention that we are heavily dependent on the Chinese to buy our debt to fund out current and future deficits, but that seems to slip Krugman and Schumer’s mind. I always hate pointing out the obvious, but if we need money and our largest creditor starts to cut you off that is a recipe for disaster. It is not the selling of the Chinese current treasuries that we should really worry about, well, we should worry about it, but not really, it is the future purchases of our debt that we need them for.
There is no doubt that the Yuan is undervalued, but who knows by how much and they need to raise its value anyhow to fight inflation. However, I have seen that the Chinese do not like being told what to do by the U.S. and payback could be a problem for all the ridiculous political posturing. Essentially, we want the Chinese to increase the value of their currency, which is pegged to the dollar I might add, making their products more expensive in the U.S., see the protectionism yet (?), so the Chinese will buy more of our products. In Schumer/Krugman land this will lead to massive U.S. corporate job growth and a return to prosperity, but reality is very different from fantasyland.
What will happen is the U.S. will begin to import more products from other countries where the dollar goes further, like Brazil, India, Indonesia, Pakistan, and a million other places. That means the job situation here will not get much better and other economies will flourish. Of course, Krugman/Schumer will then demand that all other countries increase the value of their currencies as well, it just will not work. John Mauldin brought up a great point, we tried this in 1971 with Japan, as Krugman points out, and what happened was the Yen dropped from 350:1 to, now, 90:1 and what happened to Japan’s trade surplus? It went higher because the Japanese save their money, which if we saved our money it would be the solution to our trade deficit issue I might add. It did not work in 1971, really, and it is not going to work now because people will continue to buy from China because they like the products or they will find comparably cheap products made elsewhere.
Mauldin brings up another point, Canada’s Loonie is almost at parity with the USD so why shouldn’t Canada hit us with a tariff as well if this is the game we are going to play? Of course, this wouldn’t happen because we love Canada and they love us, I think. The point is that this is protectionism, pure and simple. It is a very dangerous path and if we follow it we may find ourselves in a Smoot-Hawley situation. I am not sure why Krugman doesn’t see it that way and maybe I am wrong, after all I am not a Nobel Prize winner, but like I said I know a street fight when I see one. This is turning into a street fight and we do not have China right where we want them.
It is possible that China would, this is highly unlikely, sell their treasuries to burn us if they get angry enough. The military already suggested using our debt as a weapon against us and it would work. Sure, it would hurt them, but you know what? Mao killed 70M of his own people, I am pretty sure they could like with losing a few billion. Plus, if they take down more gold they are hedged, kind of. It is not that I am taking China’s side on this, I think they are in the wrong, and I do not think they would blow up their treasury portfolio, I am just pointing out what they could do.
We can make the argument that they need us and they do, but if they do not increase the value of the Yuan and we impose a 25% tariff on all their products I am pretty sure all bets are off and they would have to learn to live without our business anyhow. Keep in mind, China’s trade with Europe and Japan is climbing rapidly. While we are the biggest market in the world they can survive by moving deeper into those markets along with other frontier markets and Africa. The other thing you have to remember is that China has been buying resource companies over the past few years, so they have been moving away from treasuries anyhow. Finally, perhaps we should look at our own dollar situation before we pick on china. If we had taken care of our currency to begin with the Yuan would be stronger anyhow.
There is good news and bad news to this mess. The good news is it is almost over and the bad news is that is it is almost over. No matter what side of the fence you are on the one thing I can assure you of is that it is going to pass tomorrow morning. Even though I can also assure you that it is a budget buster, see the Republican CBO inquiry today for proof, and you should all know by now that the CBO is garbage in, garbage out group. What I mean is that if you feed it the sequence of data you want results for you are certain to get the desired results you want.
The real unbiased results were from the actuary that submitted his results a couple weeks ago, sorry, but actuaries know insurance and are key to determining costs, risks and results. His report shows that the costs for premiums will go sky high, I guarantee that to be the case as well, I know a thing or two about insurance as well. Basically, we have lawyers writing a bill that is math intensive and that is a major mistake, for proof look at Medicare deficits, Social Security, National Flood Insurance or any other government run program. For those who think this bill will reduce health insurance premiums ask yourself this one question, how can it is they did not take out the federal anti-trust exemption for insurance companies?
Seriously, without taking out that one exemption it is next to impossible to lower insurance premiums because it restricts citizens from buying policies across state lines. That means that insurers who have a lock on some states will still have a lock on those states, give me a break. Not only that, but now these same insurers must add millions of sick people to the roles and cannot charge them higher premiums, specifically, so that means all of our premiums will go up. This bill is the greatest gift to the insurance industry ever created. The only government gift to the private industry that was better, and it was not even close, was the no bid contracts to Halliburton under Bush. If this thing passes, buy insurance companies because for the first time in history the Federal government will mandate that citizens will be forced to buy a product from private companies to the tune of a trillion dollars over the next 10 years, give or take a few billion.
Because premiums will go sky high and our brilliant elected officials are incapable of doing simple math the subsidized premiums we will have to pay will blow those sweet deficit reducing estimates right out of the water within 3 to 4 years. If the administration and Congress decided to work with the industry, people like me who are truly impartial, they could have built a real reform bill, but since they think they know everything they have just put the final nail in the coffin of the US, from a fiscal point of view. Medicare will be insolvent or eliminated much faster than currently projected and the budget deficits will be through the roof by 2016 as the new taxes make people rethink how much money they want to earn. Oh, I am also assuming that we are actually in a recovery I might add, but if we are not in a real recovery, which the housing numbers today shows that without government help we are still in trouble, then the trouble comes much earlier.
What is that you say, AARP and the AMA support this bill so it must be OK? Let me tell you something about those organizations, in my opinion, they would sell their grand kids for an extra dollar and I am not kidding. AARP had a Medicare Advantage plan that they endorsed pulled from the market because it was so bad. They endorsed the product, it got pulled from the market and I can assure you that Medicare Advantage contract was a lot shorter than 2,100 pages long so it is highly unlikely they even know what is in the health care reform bill, but they know they can profit from it somehow. They hate variable annuity contracts, but love immediate annuity contracts because they have a GA contract with NY Life. Basically, if they can profit from it they will endorse it, period.
The AMA, who knows what they see in it except that they probably think they will get a permanent Doc Fix Bill passed or they like the idea of mandatory private insurance much better than a public option. Let’s face it, $26 per office visit from Medicare must stink versus the $50 or $90 per visit from private insurance. If you combine that an additional 30M new patients, or 40M depending who you listen to or where you get your uninsured number from, that equals some major money for the AMA and its members.
Clearly, this whole bill revolves around money for everyone. Everyone who loves it is getting paid big time to endorse it or vote for it. However, you, the person who pays for everything, is not in favor of this bill according to every poll conducted. I wonder why you are not in favor of it? Maybe because you know your Congress person is receiving tons of money from special interest groups to push things through, check opensecrets.org to see, or that Bernie Sanders, a socialist, sold out for $10B, way to be a socialist, Ben Nelson sold out for less, and of course we have the Louisiana Purchase take II. However, you have to pay your taxes plus the health insurance premiums and Congress wonders why you don’t want this thing, incredible.
What I find interesting is that New York, who is on the verge of bankruptcy, should have held out against this thing. Where was Schumer and Gillibrand on this? Why didn’t they say no way on this bill and get out Medicaid paid for? It work for Ben Nelson and Bernie I am sure it would have worked for NY. Oh yeah, Chuck was busy making the media rounds and calling flight attendants “bitch” instead of doing is fiduciary responsibility to his home state. I dislike the Republicans, I mean abortion that is the best defense against this thing you can come up with, however I agree with them that this bill is the train wreck of the century. Why is China moving towards capitalism, but the US appears to be moving towards socialism?
Clearly socialism did not and does not work, but here we are. For those who want the socialist lifestyle I urge you to seek out the countries that live under those types of regimes. I admit the US has problems, nothing is perfect, but here is the thing most countries want what we have, not the other way around. We could fix health care the right way if we took our time and did things in the open, as Obama promised he would do, but that never happened. Instead we decided to use a sledge hammer to itch our nose and it is not going to end well. Unfortunately it will take 4 years for me to be proven correct.
It’s funny how New York politics work especially since we have so many investment firms and layers located in New York City. We also have a very powerful senator, Charles ‘Chuck’ Schumer who is, huh hum, for the people and recently put the kibosh on flash trading. However, it would be nice if he voted less frequently for the big Wall Street firms and took far less money from them and their M&A lawyer friends. The same goes for his new partner in crime Kristen Gillibrand who replaced Hillary Clinton.
Both of these senators have taken large amounts of money from people who work in the investment community and who work for the large M&A firms out of New York City. Now, I get how politics work, but give the rhetoric they both have been giving about reforming the system and the fact that Schumer already has some $14 million in the bank you would think he would turn away some money from investment firms that he is supposed to be against. You would definitely think Gillibrand would turn away money from folks or PAC’s that represent Citi Group or Goldman Sachs as they represent the armpit of American finance at the moment, but nope that is not the case at all.
I guess they will continue their dog and pony show in front of the cameras about how they love the people and are doing all they can in Washington while at the same time taking money from Wall Street all but assuring that when they need another bailout they will surely get Schumer and Gillibrand’s vote, again. These two have got to go for the simple fact that Schumer has been in Washington for too long and, in my opinion, does not represent the people any longer and is way too self serving. Gillibrand is showing lack of common sense by accepting money from questionable sources, in my opinion, and voting to keep funding for ACORN even though employees were anxious to help with an under age prostitution ring.
Here is the breakdown of contributions.
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